Justin Untersteiner, chief operating officer (COO) of the Australian Financial Complaints Authority (AFCA), has addressed a parliamentary inquiry, shedding light on the insurance sector’s handling of flood-related claims and calling for a significant overhaul.
In his opening statement to the inquiry into insurers’ responses to the 2022 major flood claims, Untersteiner noted that AFCA had received 3,994 flood-related complaints from the onset of the 2022 floods up until mid-February 2024.
The aftermath of these floods was significant, with countless individuals and families experiencing displacement, substantial property damage, and a sense of uncertainty about their futures.
Untersteiner pointed out that many Australians affected by the floods were already overwhelmed by the time they approached AFCA.
“By the time they reach us, consumers are often stressed and fatigued, having typically already been through the claims process and internal dispute resolution (or IDR) processes with their insurer,” he said.
Untersteiner said the year following the floods saw a record-breaking increase in complaints against general insurers, a 50% surge representing nearly 30,000 grievances – the highest number ever recorded by AFCA and its predecessor entities. This trend has persisted, with a further 10% increase in complaints observed in the current financial year.
Such figures highlight not just the volume of disputes arising from catastrophic events but also from routine insurance matters, indicating systemic issues within the industry’s approach to claims processing and customer service.
Untersteiner’s testimony underscored the dual challenges of delays and denials that have allegedly plagued the claims process.
“People take out insurance for peace of mind, to protect their homes, cars, and families. The value of an insurance policy is in the promise that allows consumers to feel confident and secure they will be looked after if something goes wrong,” he said. “Consumers then expect their insurer to be there when something actually does go wrong and to be treated fairly and with dignity and respect when that happens.”
Communication breakdowns between insurers and policyholders emerged as a critical issue, with many consumers left without updates or clarity on their claims, leading to heightened frustration and a loss of trust in their insurers. This situation has been exacerbated by an overreliance on manual processes, which falter under increased demand, underscoring the need for the industry to invest in technology that can provide timely and tailored communication to policyholders.
The inquiry also highlighted problems with the denial of claims, often based on expert reports that were, in some cases, alleged to be either of poor quality or lacking comprehensive information. This issue was particularly pronounced in cases where claims were rejected due to “wear and tear” exclusions, without sufficient evidence to support such decisions, it was stated.
In the wake of the 2022 floods, Untersteiner called for a significant overhaul of the insurance industry’s practices.
“Based on the evidence this committee has heard, and the ongoing volume of complaints AFCA is seeing, we can only observe that a significant shift is needed for insurers to meet community expectations,” he said. “We want insurers to look at the complaints their customers are making and to seek to understand what is really driving these disputes. We believe they should ask themselves hard questions about whether, or how, their products, sales practices, and claims handling practices need to change.”
Earlier this month, insurance leaders shared their insights on the insurance industry’s responses to the 2022 major floods.
